Perdida

Fly a little west of Hamelin to locate Perdida, the town of the Xanaduans, and save the game.

Horace will be in the Very Swift Solutions shop if you've been continuing the side mission for Horace's Riddles. Solve his riddle "JABAL AL-DUKHAN" (or "OLD SMOKY") and earn the Veil spell.

Make a point to boost your familiars before going past the stairs to speak to the Queen. You can access the inn, the shop, and Very Swift Solutions without visiting the queen's house. You want your familiars to be L35 to 40 with boosted attributes at 10 to 20 as well as good equipment for the nightmare battle.

This boss surprises you after you speak to the queen at the house and approach the temple stairs. Pitch Black is a cursed area attack. Cruel Rain is area poison area attack. Note that if you can get by with some of the equipment from Yule, but if you have the option (and the time), grinding the goat path near Perdida will let you outfit your fighting force so you don't have to worry too much about the boss.

Swap in light oriented attacks for familiars (and change skills to the cheaper point skills, since it's only one boss) as well as ailment healing, and you're set. Don't forget to remove the higher cost skills as well - without them, your A.I. will not waste MP on useless attacks.

You may want to use Oliver to support his party with spells (or have Esther do that). Oliver clearly has more MP than most, so his Arrow of Light spell (12 MP) really puts on the hurt. Kill the boss and carry on.

Use Oliver's vampire spell and leech some "love" from Kublai using Take Heart. Leech that stuff back to Khulan to start the next portion of this arc. Speak to Khulan after the love transfer, and again until you unlock the Mornstar's true potential, and get the Healing Hand spell, Fortune's Fool spell, and Unleash spell.

With Oliver's new wand, slowly revisit previously cleared dungeons, towns, and interior spaces (you can use Chart Chests to see if there are any chests you missed) for hidden purple chests you could not open.

You want to check with Very Swift Solutions for bounties and errands you can do as well. If anything, now is a good time to grind. Khulan's Nightmare is probably the hardest boss you've encountered so far. You will get the Mornstar spell.

Check your Wizard's Companion for a list of dangerous places that may have the Purple Chests you missed.

Your immediate goal is to visit Al Mamoon for some miasma wood, but do so only after you sufficiently level-up your fighting force to L60 and up. You will want to use the equipment sold in Perdida as the base equipment - not even the "better" equipment.